EBRD due diligence efforts highlight importance of supply chain transparency


The European Bank for Reconstruction and Development (EBRD) has compiled a list of Chinese PV module manufacturers, which pv magazine has seen, over which questions have been raised about their supply chains – with respect to the use of forced labor. The list is likely a part of the EBRD’s due diligence measures and demonstrates the high level of scrutiny under which solar supply chains are coming. Asier Ukar, managing director of PI Berlin Spain, takes a look at where the industry is headed in keeping supply chains free from accusations of forced labor.

pv magazine: Investors and buyers of solar modules want to ensure that the products they purchase and their suppliers comply with strict environmental, social and governance policies. Legislation in the United States and concern in the European Union about supply chain traceability have put additional pressure on buyers. It is suspected that forced labor may be used in the production of polysilicon. Can reliable monitoring be carried out?

Ukar: So far, traceability upstream to include silicon wafers, polysilicon, and metallurgical silicon (MSG) has generally not been well developed or implemented. According to PI Berlin's first supply chain traceability audits, most manufacturers' silicon supply chain traceability systems only relate to cells and modules. PI Berlin has been conducting supply traceability audits to ensure consistency throughout the supply chain. At this time, the main focus of the audits is on the manufacture of polysilicon in certain regions of China.

What exactly is evaluated?

The manufacturer's ability to obtain, maintain, and document material transactions in the supply chain, including purchase orders, invoices, and bills of lading related to traceable materials and their links to raw material suppliers. They are asked about their systems for data collection, record management and retention, monitoring reports and monitoring request management. The audit is carried out by reviewing the documentation and verification at the factory and meeting with the personnel of the manufacturer's purchasing department.

In that sense, PI Berlin has developed a supply chain traceability audit that assesses the maturity of the PV module manufacturer in terms of supply chain traceability policies, systems, processes and compliance. Manufacturers are asked to share their policies, objectives, methodology, and scope for supply chain traceability management. The main focus of the questionnaire sent to manufacturers is the sourcing of polysilicon, where the greatest concerns regarding the protection of human rights have been raised.

Does this mean we have to rely on what the manufacturer says?

With the above evaluation, the buyer can assess the manufacturer's ability to trace the origin and production of the silicon used in the modules it purchases. Depending on the capacity of the manufacturers, their influence in the supply chain and their willingness to cooperate with the audit, the buyer may understand where the polysilicon in the modules comes from and be able to independently verify it. The degree of cooperation of manufacturers with the audit and the current status of their traceability system already offer valuable information to know if the manufacturer should be considered a reliable supplier.

The main challenges hindering PI Berlin's ability to execute traceability audits and generate tangible results to date have been mainly related to the unwillingness of manufacturers to offer transparency in their supply chain, the fear of receiving a bad result audit when supply chain traceability systems are still immature. So far this year, two projects have been paralyzed by the client, once it has received our results. This demonstrates that auditing the origin of polysilicon is not just a formality, and that certain agents take their internal code of conduct very seriously.

Aren't these audit reports confidential?

The common approach taken by buyers in all sectors to address these issues is audits of their supplies. As for the PV industry, the sensitive nature of these audits can lead to balancing multiple financial, political and social interests. Ideally, the buyer receives a statement from the auditor verifying, based on tests, that the products comply with the legislation and their own policies. However, limitations on the auditor such as access, confidentiality and policy, whether internal or from an independent third party, may reduce their ability to provide evidence-based conclusions. In any case, if the results are positive, that is, if we can prove that the supply chain is clean, the manufacturer will be the first to try to make it visible.

What does the audit cover? Are all manufacturers evaluated with the same criteria?

The audit provides a qualitative assessment of the scope, strength and maturity of a traceability system. The manufacturer is evaluated based on its ability to provide supply chain traceability documentation that is consistent and compliant with the current guidelines and requirements of its relevant jurisdiction. We do not make distinctions between manufacturers, we evaluate large and small manufacturers in the same way.

Developers are concerned about project delays if modules are seized by US customs, border and protection authorities, as has happened several times in the past year. Is there any way to minimize risks? What does Europe plan to do?

The United States has already passed legislation enacting a Sale Retention Order (WRO) on modules containing materials from certain Chinese metallurgy and polysilicon manufacturers. The European Union is preparing its own directive. The EU Sustainability Due Diligence Directive is due to be published in 2023 and will require Member States to implement national legislation obliging companies to integrate policies focused on human rights and the environmental impact of the supply chain. Germany has already passed legislation that will gradually impose requirements on companies starting in 2023.

On the other hand, an independent audit report cannot guarantee that the manufacturer will not be subject to seizure of the merchandise in the US or in other countries where there are import restrictions related to the origin of the materials of the modules. The ability to initiate this type of audit work is subject to the customer obtaining the manufacturer's consent to be audited, the manufacturer's continued cooperation, and Chinese anti-foreign sanctions laws. This may affect PI Berlin's ability to carry out this work.

Is there any way to know which manufacturers can be more transparent?

Supply chain traceability is a new requirement for manufacturers and many are continually creating or improving their traceability systems, together with their suppliers. The more vertically integrated the manufacturer, the greater its ability to trace its products. Also, the larger the manufacturer, the greater its ability to apply commercial leverage to obtain the level of traceability a client wants or needs. Some manufacturers are also in the process of changing and reorganizing their supply chains to avoid potentially restricted or non-compliant materials and suppliers.

To what extent is this fulfilled today? What should a developer take into account?

Most manufacturers are still unable or unwilling to offer full transparency in their supply chains to the level that buyers are asking for, but this is evolving. For their part, buyers of equipment for photovoltaic plants will have to address supply chain traceability issues in the future, both to comply with their own policies and with those of existing or planned legislation in their countries. A combination of independent audits and specific clauses in supply agreements can help buyers assess risks and identify strategies to address them.

It is strongly recommended that traceability requirements and independent audits are integrated early in the purchasing processes, as part of the qualification and tender processes for manufacturers, rather than waiting for the requirements to be executed. Based on the audit results and the cooperation of the manufacturers, buyers will be in a better position to determine if they should consider the manufacturer as a suitable supplier for their future PV projects.

This article was corrected on 23.05.2022 to reflect feedback received from the ERBD that it has not published nor compiled a blacklist of Chinese PV manufacturers and since there is no blacklist, there is also no deadline of May 23, as originally published. The EBRD says it carries out thorough due diligence processes before undertaking any project, and this would include taking account of any published information relevant to the potential project.


This content is protected by copyright and may not be reused. If you want to cooperate with us and would like to reuse some of our content, please contact: editors@pv-magazine.com.

Popular content

Germany’s balcony PV installations hit 200 MW in H1
19 July 2024 Germany's Federal Network Agency (Bundesnetzagentur) says 220,000 balcony PV systems were installed in the country in the first half of the year, reac...